Socratic Investigation of Business Ethics

I just got back from spending four days at the Aspen Institute's Socrates Society conference in Aspen, Colorado. Many luminaries were present, including Thomas Friedman, Jim Woosley, Nouriel Roubini, and Walter Isaacson. The Socrates Society conferences are unique in that they explore issues by using the Socratic method, so the entire group carries the conversation, which is moderated. My group focused on the relationship between business and government since the 2008-09 financial crisis and the discussion was moderated by Clive Crook of the Financial Times.

Some of our group discussion was devoted to cataloging the many "improbable" causes of the financial crisis, including: the ambiguous status of Fannie and Freddie; financial deregulation; incentives that encouraged risk-taking without accountabilty; financial innovation; rating agencies' relationships with financial sector; tax incentives for borrowing; a culture of debt in the United States; and the assumption that the housing bubble would continue indefinitely. Of course, I also added the global elements of high savings rates in East Asia, the huge demand for US debt in Asia, and the low interests rates that occurred as a consequence. I was surprised that another global factor didn't come up: The demand for American financial products in Europe.

The US financial reform plan was described as having three basic components: 1. new regulations for non-bank financial institutions that were acting like banks; 2. the government category of tier one or "too big to fail" banks, which will become more regulated with stricter capital requirements as well as an "early resolution authority" (the FDIC); 3. the establishment of a consumer finance protection agency, which will tighten mortgage lending. Some gaps in US reform include the lack of action on US regulatory reform complexity and a question about whether local consumer protection may be better than a central US agency. Finally, many people expressed the need for short, plain English contracts that go with loans rather than long, arduous documents with lots of fine print.

A great deal of discussion dealt with the notion of "libertarian paternalism" or soft paternalism. Basically, people were split on the morality of framing questions or "nudging" people to choose what is best for them through, for example, "opt-out" forms at the motor vehicle department. For example, is it ethical to ask people to opt-out (instead of opt-in) of organ donation or participating in 401K schemes? I took the view that framing questions like this is analogous to persuasion along the lines of commercials, public service announcements, or speeches. But some participants complained that this strategy was a "slippery slope" that could lead to abuses; one participant cited an example of a state using the "opt-out" tactic for license plate forms to fund a private party for a foreign dignitary--an example of abuse.

At the end of the three-days of Socratic investigation into business ethics, we turned to corporate social responsibility (CSR). Much of the discussion centered around whether CSR activities should help the corporate bottom line. One person suggested that CSR was OK as long as it improved a company's business. But what about the long-term effects on employee relations, marketing, brand, etc? Most of the discussion about CSR treated corporate responsibility as if it were something separate from the core business model; it seemed to be a dated perspective. To me, the most cutting-edge understanding of CSR is when companies integrate into their business models regulations that ultimately advance a broader, social interest. That's why many people say that companies that are truly responsible don't need a separate CSR department.

The whole experience was extremely rewarding. I felt my time in Aspen sharpened my mental blade and I would recommend it to anyone!